[Debate] (Fwd) Microcredit crit (cont.)

[Patrick Bond]

  The unfulfilled promises of microcredit: some new evidence

31 January by *Stéphanie Jacquemont
*

*http://www.cadtm.org/The-unfulfilled-promises-of
*


<http://www.cadtm.org/spip.php?page=article_pdf&id_article=7544>

Muhammad Yunus, 2006 Nobel Peace Prize laureate and founder of the 
Grameen Bank, made the promise of a world without poverty thanks to the 
magic of microfinance and social business |1 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-1>|. Since the 
main problem of poor people was, he said, that they are denied access to 
capital and markets, the way to release them from the grip of poverty 
was to lend them small amounts of money. The micro-borrowers would then 
become competitive micro-entrepreneurs in ultimately rewarding markets. 
Furthermore, the micro-loans, mostly granted to women, would serve as a 
springboard towards greater financial autonomy and influence in 
decision-making. A tailor-made programme, we could say, for the 
so-called "community of donors" (the UN, World Bank, development 
agencies in rich countries), for whom women's empowerment and poverty 
reduction are officially among the top financing objectives. 
Microfinance on the Yunus pattern, which now embraces a wide range of 
activities (from other financial services, such as pension schemes and 
insurance, to the sale of yogurt |2 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-2>| and mobile 
phones), is all the more attractive to official development aid players 
and private investors since it dismisses out of hand the option of 
reinforcing the social State, considered as inefficient, corrupt and 
keeping the poor in a state of dependency.


Money has thus flowed in for NGOs and other institutions engaged in 
microcredit, and many studies, often biased because funded by donors or 
microfinance players themselves, have praised the results of microcredit 
- a business considered both useful for borrowers and profitable for 
lenders.


*Scratching the surface of the rosy images*

Yet this glowing picture of microfinance has been seriously damaged. 
First there were the scandals around the Grameen: in March 2011, 
Muhammad Yunus was dismissed by the Bangladeshi government from the 
chair of this bank after a Norwegian documentary ("/Caught in Micro 
Debt"/ by Tom Heinemann) |3 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-3>|
showed evidence of embezzlement. Since then, the bank has launched a 
propaganda campaign to restore its tarnished reputation. But there are 
even more serious charges against microfinance, such as the wave of 
suicides among female micro-borrowers in the Indian state of  Andhra 
Pradesh since late 2010. These are sufficient reasons in themselves to 
doubt the alleged benefits of microfinance.

  For several years, in-depth independent studies have questioned the 
model of these "banks for the poor". One such study has been made by 
Lamia Karim, an anthropologist, who last year published /Microfinance 
and its Discontents: Women in Debt in Bangladesh /(Minneapolis: 
University of Minnesota Press, 2011) |4 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-4>| This 
ethnological study, carried out in 1998 and 1999 and supplemented by a 
follow-up study in 2007, demolishes the main claims of microcredit NGOs 
in Bangladesh - namely that they have given the most destitute people 
the means to pull themselves out of poverty, curtailed the business of 
moneylenders and empowered women. The findings of the study have 
severely ruffled the pages of official microfinance literature and its 
happy endings.

  Lamia Karim has been able to bring facts into the open which are 
usually unknown or hushed up for various reasons. First, the fact that 
her study is independent allowed her to make an objective assessment of 
the situation; secondly, her knowledge of Bangla and of the prevailing 
social codes of Bangladeshi society opened doors that would have 
otherwise remained closed (most researchers on the subject who do not 
know Bangla depend on guides -- hopefully honest ones - to carry out 
their research); finally, she chose to situate her area of research off 
the beaten track, far from the districts close to the capital where 
locals are used to the presence of foreigners and tend to sell the 
information they have, and where carefully selected NGO members perform 
"/scripted shows of development"/ to show how successful microcredit 
is. |5 <http://www.cadtm.org/The-unfulfilled-promises-of#nb3-5>|


*"The economy of shame", or how women's weakness is instrumentalized*

Lamia Karim carried out her ethnographic study in a rural area of 
Bangladesh where NGOs are ubiquitous and therefore should not be 
considered as non-State players, according to herself and other 
researchers who worked on the subject. The 23,000-odd registered NGOs 
have nearly 20 million rural women members, and in a context where there 
are very few State representatives, they have gained power over the 
population as the main providers of basic services (healthcare, 
education, credit, etc.) and employment. Lamia Karim refers to them as 
"a shadow State".

She studied four microcredit NGOs (Grameen Bank |6 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-6>|, Building 
Resources Across Communities-BRAC, Proshika, and the Association for 
Rural Advancement-ASA), during the boom period of microfinance in 
neo-liberal Bangladesh - a period when the number of players involved in 
microfinance multiplied and when funds flowed in to promote the sector.

The four organizations studied followed the same microcredit model, with 
some variations. This model is based on the creation of groups of 
borrowers, collectively responsible for the payment of each individual 
loan granted to their members, and subject to a strict repayment 
schedule. Repayments are collected on a weekly, fortnightly or monthly 
basis. The vast majority of borrowers are women, which does not mean 
that they are the ones who benefit from the money and have control over 
its use - far from it. Indeed, most of the time, the money is given to 
their husbands or other male family members |7 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-7>|, but the women 
remain responsible for repaying the loan. This increases the pressure on 
these women who, in traditional Bangladeshi society, are the guarantors 
of their families' honor. For these women, defaulting on a loan amounts 
to losing face and bringing dishonor on their entire family, as well as 
on their group of borrowers. The study shows how NGOs have 
instrumentalized women's "positional vulnerability" |8 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-8>|, how they 
"/manipulate existing kin and social relations to regulate the financial 
behavior of individual borrowers to create wealth for the NGOs/" |9 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-9>|. Earlier 
studies had already pointed out that, contrary to NGO assertions that 
they do not ask for any guarantee, the group of borrowers is used as 
collateral since the group is held responsible for each individual loan 
granted to its members. Lamia Karim goes further by showing how women's 
honor is used to facilitate repayments. A phenomenon she describes in 
detail and which she calls "the economy of shame".

*Multiple lending and usury: when microcredit leads to over-indebtedness*
Under pressure from their family, from other borrowers and from NGO 
employees, these women have to do whatever is needed to repay their 
debt, no matter what the cost.

One of the problems inherent to the microcredit model on the Yunus 
pattern is that it makes it difficult for borrowers to invest the money 
they receive since repayments start just after the loan is disbursed (in 
Yunus's opinion, this allows NGOs to detect possible problems 
immediately and make the borrowers responsible) and the repayment period 
does not exceed one year |10 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-10>|. Only women 
who have some sort of regular income, for instance thanks to their 
husbands' wages, can actually afford to invest in activities which do 
not generate profits immediately, for example agriculture. For those who 
do not have such luck, one of the common ways to make timely repayments 
is to borrow from other NGOs. Most of the women Lamia Karim met had 
borrowed from 5 or 6 NGOs - the loan contracted with one of them being 
used to repay the debt with another one, and so on. This is quite 
similar to what happens to over-indebted households in the North, who 
have no choice but to resort to multiple borrowing to make ends meet. 
Applying for loans from several lenders is facilitated by the fact that 
competing NGOs do not check on their clients' solvency. The managers of 
their various local branches are under pressure from their superiors to 
show higher and higher loan disbursements.

  Another way for these women to cope with repayments is to invest the 
money they get in moneylending. One of the stated goals of microfinance 
players is to free the poor from the moneylenders' grip by offering them 
small amounts and lower interest rates (though still at about 20 % in 
the late 1990s) than those charged by traditional moneylenders, who 
usually demand a 120 % interest rate. Nevertheless, far from the 
fairytales depicted in the promotional campaigns of microcredit NGOs, 
Lamia Karim observed that women sometimes have no option but to invest 
in moneylending, giving loans to traders, farmers, or other NGO 
borrowers unable to repay their debt. Therefore, instead of reducing the 
power of moneylenders over rural people, "/microcredit operations had 
effectively widened the net of moneylending"/ |11 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-11>|. The 
traditional moneylenders also benefit from it: indeed, the few assets 
that the families purchase thanks to microcredit make them appear as 
less risky customers and more worthy of interest -- in both senses of 
the term. For example, a moneylender might station himself just a few 
meters from the NGO centre and lend to women who were short of money to 
repay their installment; or another moneylender might attend the Grameen 
meetings and be asked by the Grameen employee to lend money to cover 
defaults.

*Twisting the principles*

With their wholehearted involvement in microfinance, these NGOs have 
alienated themselves from the principles they once defended, and have 
fully embraced the neo-liberal agenda. The activities of BRAC, whose 
chairman, Fazel Abed, was once inspired by the work of Paulo Freire, or 
of Proshika, which in the 1970s organized the peasants in their struggle 
against the landowning elite, could hardly be called subversive as they 
exist today. Such organizations have gradually turned away from their 
awareness-raising and educational missions, and have neglected other 
social issues to develop their microfinance activity. Most of the 
working hours of managers of local branches and field-workers are 
devoted to the management of loans, accountancy and debt collection. A 
trend illustrated by the example of an NGO worker who had only talked 
twice in five years about education and empowerment: once during his 
training period and once when interviewed by a researcher. |12 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-12>|

Another gap between words and actions is to be found in the increased 
targeting of the middle classes by NGOs, which are nonetheless quite 
ready to present themselves as allies of the very poorest. Competition 
and the search for profitability have led them to deal increasingly with 
more credit-worthy customers. A further factor, identified by Lamia 
Karim in her study, intensifies this trend: some middle-class women, 
after being refused loans due to their more comfortable financial 
situation, pay poor women to act as proxy members and take loans for 
them. Sometimes the social status and the relative power of these 
middle-class women in the villages are enough to force NGOs to grant 
them loans.

Another phenomenon was observed by Lamia Karim and other researchers 
before her:  loans being granted for the dowries of brides. Although 
these NGOs claim they work for women's empowerment, they in fact help 
reinforce this patriarchal practice |13 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-13>|. Sometimes, 
the dowry no longer consists of goods, but rather in the bride's 
capacity for getting loans from several NGOs. As pointed out by the 
researcher, "g/iven the preferential treatment of women as key access to 
capital for rural households, it should not be surprising that loans 
acted as a form of dowry for women"/ |14 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-14>|. While in a 
1994 study Grameen reported 30,000 marriages without dowry among its 
members, Lamia Karim and Aminur Rahman did not come across a single case 
of marriage without dowry in their respective research.

Last but not least, to maintain repayment rates close to 98 %, these 
NGOs rival each other in creativity and immorality in the matter of debt 
collection. The women borrowers interviewed during the survey mentioned 
that NGO workers regularly resort to verbal threats, physical or 
psychological violence (harassment, holding, humiliations...), even to 
house-breaking: when a borrower is unable to repay, other members of her 
group or NGO workers handling her loans sometimes get repayments by 
wrecking her house and selling what can be sold! Moreover, during the 
follow-up study in 2007, Lamia Karim noted that NGOs resorted more and 
more frequently to the police and/or courts to settle their disputes 
with defaulting members.

This incredible violence exerted by the workers of microcredit 
organizations can be explained by the pressure put upon them by their 
superiors. Profitability being the key word, in case of borrower 
default, managers go so far as to withhold the corresponding amount from 
the worker's paycheck as an incentive to be inflexible. Lamia Karim 
noted that the women who work for microcredit organizations are usually 
harsher in collecting repayments, since the risk of their being fired if 
the number of defaults increases is higher than for their male 
counterparts.

The NGOs keep up the pressure even for victims of natural disasters. For 
instance in 2007, the victims of the cyclone Sidr were asked to repay 
right after the cyclone struck! And this happened even though the 
caretaker government at the time called on NGOs to introduce a 6-month 
moratorium for cyclone victims. In this respect, Muhammad Yunus's 
position is stunning. In his autobiographical (and self-indulgent) book 
entitled /Banker to the Poor: Micro-Lending and the Battle against World 
Poverty,/ he blithely explains: "/But no matter what cataclysm, weather 
disaster or personal tragedy befalls a borrower, our philosophy is 
always to get that person to pay back his or her loan, even if it is 
only at the rate of half a penny a week. /[...]. /If a flood or a famine 
decimates a village and kills borrowers' crops or animals, we 
immediately lend them new money to start up again. We never wipe out old 
loans, but convert them into very long term loans and try to get the 
borrower to pay them off /[...] /It can happen that our borrowers are 
victims of disasters three or four times in one year. But no matter. The 
Grameen employees step in to offer them new emergency loans to allow 
them to start over a fifth time/ |15 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-15>|. It seems 
that for Yunus, every cloud has a silver lining... and that he was 
inspired by the policies of Northern countries and international 
financial institutions which rush to give their "aid", in the form of 
repayable loans, to countries hit by disaster.

To conclude, this valuable study brings additional arguments to those 
who oppose the kind of microcredit practised by the large organizations 
internationally lauded by the donor community. By analyzing credit not 
as a matter of trust but merely as a debt, Lamia Karim shows how 
"/beyond its hagiographic transcripts, microfinance is fundamentally a 
relationship of inequality between the creditor and the debtor/" |16 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-16>|. Far from 
enabling changes in social structures, the kind of microfinance she 
analyzed increases the pressure put on rural women, even though it has 
undeniably enhanced their visibility in public areas. On the one hand, 
the relationship of domination and subordination created by credit is 
intensified in the rural society of Bangladesh, where everyone knows 
everyone and where being unable to repay means losing face. On the other 
hand, women are caught in a dense web of kinship and social obligations, 
which constrains their behaviour and which is used by microcredit 
organizations to guarantee timely repayments. Moreover, success stories 
are very rare since the loans granted to poor women cannot be invested 
and since credits increasingly go to middle-class households. In 1997, 
Muhammad Yunus was celebrating the innate capacity for survival in all 
human beings |17 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-17>|. When he 
received the Nobel Peace Prize in 2006, he was encouraging big companies 
to consider the poor as a huge market waiting to be conquered |18 
<http://www.cadtm.org/The-unfulfilled-promises-of#nb3-18>|. So why on 
earth would we want to release them from poverty?

  *


  *




    Footnotes

|1 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-1>| See in 
French Denise Commane's article 'Yunus : Prix Nobel de l'ambiguïté ou du 
cynisme ?',
http://www.cadtm.org/Muhammad-Yunus... 
<http://www.cadtm.org/Muhammad-Yunus-Prix-Nobel-de-l>

|2 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-2>| Result of a 
collaboration between Grameen and the food industry giant Danone.

|3 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-3>| More than 
an anti-corruption move, this decision of the government of Bangladesh 
should be interpreted as a power struggle between political rivals. On 
this subject, see Patrick Bond's article 'A run on Grameen's bank 
integrity, as founder's career ends in disgrace' 
http://www.internationalviewpoint.org/spip.php?article2174

|4 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-4>| Unless 
otherwise specified, all quotes come from this book.

|5 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-5>| Lamia Karim 
writes: "/I learnt that BRAC had a model village in Mymensingh, where 
their training center (TARC) was located. They said that BRAC also had a 
traveling group of villagers who would go to different places to perform 
for foreign guests. Foreign dignitaries and Western donors were taken to 
these specific locations for their official visits to witness these 
scripted shows of development./" (p. 46)

|6 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-6>| The Grameen 
Bank is not officially registered as an NGO; the State holds part of its 
capital and it operates legally as a bank. Nonetheless, the author chose 
to consider it as an NGO for several reasons she sets out p. 212 (note 11).

|7 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-7>| The data 
collected by Lamia Karim show that 95% of the female borrowers she met 
were in that situation.

|8 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-8>| Phrase 
coined by Aminur Rahman in his study /Women and Microcredit in Rural 
Bangladesh : An Anthropological Study of the Rhetoric and Realities of 
Grameen Bank Lending/ (Boulder, Colo. : Westview Press, 1999).

|9 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-9>| p. xvi-xvii.

|10 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-10>| The 
author says that between the beginning of her research in the late 1990s 
and her follow-up study in 2007, the NGOs she analyzed had shortened the 
repayment schedule from 52 weeks down to 44-46 weeks, which resulted in 
higher installments and increased pressure on the borrowers.

|11 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-11>| p.81

|12 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-12>| Example 
from Jude Fernando's study. "Microcredit and the Empowerment of Women: 
Blurring the Boundaries between Development and Capitalism" in 
/Microfinance: Perils and Prospects/, ed. Jude Fernando (New York: 
Routledge, 2007)

|13 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-13>| It is 
worth noting that in the "Sixteen Decisions" designed as guidelines for 
Grameen borrowers forbids them from accepting or giving dowries for the 
marriage of their daughters. See the Sixteen Decisions on the Grameen 
website http://www.grameen-info.org/ (NB: Lamia Karim observed that, 
while formally existing, these sixteen decisions were no longer in 
practice in her research terrain).

|14 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-14>| p. 83

|15 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-15>| In 
Muhammad Yunus, /Banker to the Poor: Micro-Lending and the Battle 
against World Poverty/, Public Affairs, 2003. The last sentence is a 
translation from the French edition, /Vers un monde sans pauvreté/, 
Paris : Jean-Claude Lattès, 1997, p.229

|16 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-16>| p. xxxii.

|17 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-17>| "/I 
firmly believe that all human beings have an innate skill. I call it the 
survival skill. The fact that the poor are alive is clear proof of their 
ability. They do not need us to teach them how to survive/", in Muhammad 
Yunus, /Banker to the Poor: Micro-Lending and the Battle against World 
Poverty/, Public Affairs, 2003.

|18 <http://www.cadtm.org/The-unfulfilled-promises-of#nh3-18>| "/In his 
Nobel Speech, Professor Yunus called upon global corporations to look 
upon the poor as an unrealized market for their goods/" (p. 195).

Translated by Stéphanie Jacquemont in collaboration with Judith Harris

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